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Revisiting Creative Accounting in the Context of Islamic Economic and Finance System

Author

Listed:
  • Ali Malik
  • Nasser I. Abumustafa
  • Haider Shah

Abstract

The paper investigates the possibility and spread of creative accounting (CA) related practices in the emerging financial system based on Islamic ideology and economics principles. Analytical methodology has been adopted in order to answer the research questions with a view to improving clarity of concepts. At the doctrinal level, there is little likelihood for practices associated with creative accounting as Islamic finance forbids use of misleading information in business transactions. At the operational level, however, factors like adoption of conventional accounting standards, use of income smoothing practices, and the flexibility in subjective interpretation of scripture based laws (Sharia) open up possibilities for the new financial system to be permeated by creative accounting practices. Islamic finance can be plagued by the pernicious effects of CA practices, therefore, any complacency on the part of advocates of Islamic finance can be misplaced. If practices like creative accounting continue to prevail in Islamic financial system, it will negatively affect the image of Islamic finance as an ethical, just, equitable and fair system. The authors have made a contribution by drawing attention of the research community to the neglected but important issue of creative accounting by critically analysing it and arraying the doctrinal view against the operational view.

Suggested Citation

  • Ali Malik & Nasser I. Abumustafa & Haider Shah, 2019. "Revisiting Creative Accounting in the Context of Islamic Economic and Finance System," Asian Social Science, Canadian Center of Science and Education, vol. 15(2), pages 1-80, February.
    • Handle: RePEc:ibn:assjnl:v:15:y:2019:i:2:p:80
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    References listed on IDEAS

    as
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    5. Heiko Hesse & Andreas (Andy) Jobst & Juan Solé, 2008. "Trends and Challenges in Islamic Finance," World Economics, World Economics, 1 Ivory Square, Plantation Wharf, London, United Kingdom, SW11 3UE, vol. 9(2), pages 175-193, April.
    6. Rizal Yaya, 2004. "Would the Objectives and Characteristics of Islamic Accounting for Islamic Business Organizations Meet the Islamic Socio-Economic Objectives?," Jurnal Akuntansi dan Auditing Indonesia, Accounting Department, Faculty of Business and Economics, Universitas Islam Indonesia, vol. 8(2).
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    Full references (including those not matched with items on IDEAS)

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    JEL classification:

    • R00 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General - - - General
    • Z0 - Other Special Topics - - General

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